As gold makes new highs and oil supplies look ever more threatened maybe this Der Spiegel article is somewhat timely, it's in the form of an interview with US economist Barry Eichengreen:
'SPIEGEL: A look at the banks' books, though, is enough to realize that it won't be easy. They are still full of bonds from high-risk countries that have yet to be written off. And the equity base of European banks in particular remains weak.
Eichengreen: Europe's banks are in far greater danger than people realize. Most people now understand that last year's stress tests didn't tell us much. The tests were a token gesture and lacked realistic scenarios. They completely ignored the liquidity risks that banks could face. Regulators will not be allowed to get away with that this time. However, what would put my mind at rest more would be if the responsibility for carrying out the stress tests went to the European Commission. National regulators are too susceptible to pressure from the regulated.
SPIEGEL: How much money do the banks need to crisis-proof their balance sheets?
Eichengreen: As a rough estimate, I'd put the costs for recapitalizing the German and French banks at 3 percent of Franco-German gross domestic product.
SPIEGEL: So about €180 billion.
Eichengreen: There are no cheap solutions. My main concern is that Europe will choose a middle path again, for example by making the interest and terms on loans to Greece and Ireland more tolerable. Europe's leaders wouldn't be wrong in doing that, but it would fall far short of what is needed to save the euro. The result would be more wasted months for Europe.'
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